The Secret To AOL's Surprisingly Good Earnings: Paying Subscribers

AOLAOL COO Artie Minson has optimized the subscription business to slow down churn

AOL reported surprisingly good earnings today.

Thanks to modest declines in revenues and some growth in display advertising, it is closer to being a revenue and profit growth company than it has been since it spun out from Time Warner in 2009.

One big reason for the slower revenue declines is that AOL's most profitable business – it's dial-up and subscriber business – shrank less during Q2 than it did during any preceding quarter.

That's important because subscription revenues still account for 33% of AOL's revenues and a vast majority of AOL's very slim profits.

In fact, the best way to think about AOL as a company is that current management is a VC firm/holding company investing in startups and businesses like Patch and Huffington Post, and it has limited partner, the subscriptions business.

So, how did AOL reduce this "churn"?

One part of the answer is that, eventually, AOL's subscription customer base will shrink to a point where the remaining customers are people who will never switch. They aren't paying attention or just don't care.

But AOL COO (and still acting CFO) Artie Minson gave two others reasons during a conference call this morning:

AOL has improved the subscription product.

AOL has gotten better at talking people who want to quit the subscription product out of doing so. "Existing customers plus those who call in with a potential cancel intent, we've been able to articulate to them the new value we have put in the product. That has improved saves rate, that has had them sign up for new services. When we do that, we have a drastic reduction in churn."

You may be surprised to learn that many AOL subscribers don't use AOL to get onto the Internet. AOL has several subscription packages for these people.

What do they get? Mostly customer support and security software.

For example, someone with Internet access provided by another company can pay AOL $7 per month and get these features: